Amid rising costs, colleges cut back merit aid

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As colleges and universities consider whether to join Harvard and Princeton in abandoning early-admissions programs, some are also trying to roll back another popular recruiting tool: merit aid.

Colleges offer merit aid, which is typically awarded on the basis of grades, class rank and test scores, to students who ordinarily wouldn't qualify for financial help. Because merit aid can be a deciding factor in these students' choice of schools, it has become a major weapon in the bidding wars among colleges for high achievers who can help boost their national rankings.

The National Association of Student Financial Aid Administrators says merit awards accounted for $7.3 billion, or 16 percent, of all college financial-aid grants in the U.S. for the 2003-2004 academic year, the latest for which data are available. That's up sharply from $1.2 billion, or 6 percent of the total, in 1993-1994.

But the cost of such programs has mounted as their use has expanded and tuition has risen. Meanwhile, criticism has grown that they disproportionately benefit students from wealthier communities with better school systems, siphoning resources away from lower-income students with greater financial need. In some cases, students who qualify for neither need- nor merit-based aid end up paying even more to cover a college's costs. As a result, a small but growing number of schools and university systems are trying to reduce their merit offerings.

The University of Florida recently slashed the value of its four-year scholarships for in-state scholars who qualified under the National Merit program by 79 percent to a total of $5,000.

Last year, Illinois eliminated funding for a statewide merit program. Since 2004, the state of Maryland has been phasing out one merit program and flat-funding another while nearly doubling need-based college aid, to about $83.3 million a year.

Many highly selective private schools like Harvard and Stanford universities don't offer merit aid, but some colleges that do are paring back sharply.

Allegheny College, in Meadville, Pa., where annual tuition and fees total about $28,300, gave its $15,000-a-year merit scholarships to 15 percent of this year's freshmen, down from about 33 percent three years ago. To free up funding for more need-based aid, Rhode Island's Providence College scuttled its smaller merit scholarships and raised the eligibility requirements for its larger ones: A grade-point average of about 3.7 on a 4.0 scale used to be good enough; now it takes around a 3.83. Providence's merit scholarships can run as high as full tuition, which is $26,780 this year.

Private-college associations in Pennsylvania and Minnesota are also taking early steps that could lead to broader cutbacks. They have been gathering data and weighing whether to ask the Justice Department for an antitrust exemption so their members can discuss joint action to reduce merit aid. With many colleges fearful that unilateral cuts will drive talented applicants into the hands of competitors, "it's going to take a group effort," says David Laird, president of the Minnesota Private College Council.

But many college administrators fear that even discussing collective action will trigger an expensive repeat of 1991, when the Justice Department sued the Massachusetts Institute of Technology and eight Ivy League schools, charging them with antitrust violations for agreeing to adjust their financial aid offers so that a family's out-of-pocket price would be the same at every school. The suit was eventually settled, and a subsequent federal law permits 28 elite universities to agree on standards for granting financial aid but bars them from trading data on individuals.

Efforts to cut back on merit aid also risk setting off a backlash from middle- and upper-income families who don't qualify for need-based aid but are finding the rising cost of a college to be a daunting stretch. "Family income isn't keeping pace with the things driving higher-education costs," says Jim Scannell, a partner at Scannell & Kurz Inc., a Pittsford, N.Y., consulting firm that works with colleges on enrollment issues.

Some high-achieving applicants target schools that have merit-aid programs, hoping to win a tuition break. With tuition and fees at many private schools surpassing $40,000 a year, small private liberal-arts colleges that lack the cachet of the Ivy League but whose tuitions far exceed those of state colleges could have the most to lose from any cutbacks in merit aid.

For many parents, merit aid "has become more of an expectation," says David Hawkins, public policy director for the National Association for College Admissions Counseling. James Boyle, president of College Parents of America, an advocacy group, adds that, "From a political standpoint, its difficult to take away."

Indeed, efforts to contain the cost of statewide merit programs have sparked legislative battles in Georgia and other states. Despite the rising costs of aid, Georgia and Michigan have bet on merit-based scholarship programs as an economic-development tool, hoping to attract and keep academic talent and ultimately to spur research and innovation.

Many institutions have no intention of cutting back on merit aid. Baylor University, a Baptist college in Waco, Texas, recently increased the value of the merit awards it gives to all incoming freshmen who score at least 1,300 points out of a possible 1,600 on SAT reading and math exams. The awards, which rise in value in tandem with a student's SAT scores, range from $2,000 to $4,000 a year.

Jackie Diaz, Baylor's assistant vice president for student financial services, says the average SAT score for this fall's freshmen was 1,213, up from 1,196 a year ago. "I certainly think the financial-aid awarding has something to do with that," says Ms. Diaz, whose university gave merit packages valued at an average of $6,880 a year to about a third of last year's freshmen class.

For some smaller schools, merit aid is less about boosting rankings than adding revenue by swelling enrollment. In most cases, students are still paying substantial sums for tuition even after receiving a scholarship. "I think in many cases it's misleading to call it merit aid," says Michael McPherson, president of the Spencer Foundation, a Chicago-based educational research group. "It's 'get 'em in the door' aid."

At private Wilkes University, Wilkes Barre, Pa., where tuition and fees are about $23,000 a year, only 81 of this year's 580 incoming freshmen didn't get merit aid. To land a scholarship, which starts at $6,000 a year, students have to have graduated in the top half of their high-school class and to have scored a combined total of at least a 900 on the SAT reading and math exams, not much above average.

Mike Frantz, Wilkes's vice president for enrollment and marketing, concedes that the school's minimum requirement for merit aid "isn't incredibly high" but says the offers are necessary to persuade many cost-conscious students to seriously consider Wilkes.

Most institutions, meanwhile, have shied away from cutting athletic scholarships, which often come out of a separate pocket. The University of Florida, for example, while downsizing the value of its National Merit scholarships, hasn't tinkered with its athletic awards. University officials say the $6.9 million in athletic scholarships it awarded last year were entirely funded by private donations and that revenue generated by the athletic program contributed more than $1 million to Florida's budget for need-based aid last year. Athletic scholarships at many schools are funded at least in part by private donors.

During the 2003-2004 academic year, according to the most recent federal data, about half of the nation's students received need- or merit-based grants, averaging about $4,000 each, and about a third took out student loans averaging $5,800, with those groups, in some cases, overlapping.

Colleges that have whittled down their merit offerings have generally not raised income caps for need-based aid eligibility or otherwise altered their formulas for determining who qualifies for financial aid. With most schools unable to meet the existing demand for such aid, "they are not looking for ways to generate new measures of need," says Sandy Baum, an economist at Skidmore College.

Although families with earnings of $100,000 or more might qualify for need-based aid, depending on factors such as how many college-aged children they have, college administrators say many such families usually don't bother to apply for need-based aid because they presume they won't get it.

Several studies have shown that merit aid benefits a disproportionate number of more-affluent students. During the 2003-2004 academic year, colleges gave about 30 percent of their merit aid to students from families with incomes above $92,400; about 20 percent went to families with incomes of $33,350 or less, according to a recent study by Donald Heller, an education professor at Penn State.